Monday, August 29, 2011

Alan Krueger

Is Alan Krueger a good person to head the Council of Economic Advisors? Here's his CV. Krueger is a successful applied microeconomist who has worked on problems in labor economics and education. I may be wrong, but I think we can characterize him as astructural, vs. structural along the lines of Heckman, Wolpin, or Pakes. Krueger would certainly have a grip on the ailments of US labor markets and US education, which certainly seem central to what the CEA should be thinking about. How any individual will behave in a policy job is hard to predict, but this seems as good a choice as any to me. Maybe you know something I don't though. I do know that this paper was a little weird.

19 comments:

I never really understood why the Card/Katz/Krueger stuff got such a huge amount of press. If the old methodologies consistently show one thing and don't have any glaring flaws (and arguably discrediting a small number of handpicked papers that use said old methodologies doesn't really cut it) and a new methodology varies significantly from paper to paper (see the C/K exchange with Neumark/Wascher) then the new methodology probably just sucks. I just sort of assumed ideology had something to do with it, at least when it comes to its reception in the press and amongst laypersons.

I'm sure you could find similar examples of that sort of thing on "the right" too though.

Anyway, he's clearly a very bright and accomplished guy. Definitely qualified. We'll see how he does, not that there's a great deal he can do.

Well, theory is pretty unequivocal about the minimum wage, i.e. it's an inefficient way to help some poor people, and it will in general hurt some other poor people. There are good reasons why it's a standard example intro to micro. Of course we know why we have laws like this: person-on-the-street intuition favors it, and it has no obvious effects on government budgets. I don't think Krueger changed any views on these things.

Today's NYT claims Obama is considering a temporary tax credit to promote hiring, and claims Krueger has pushed the idea. Even if you buy the idea that subsidizing employmnent would be beneficial, this seems like it would have insignificant effects.

Krueger is not the first person I would turn to for advice on macroeconomic policy, since he has done no work (as far as I know) on macroeconomics or on macro policy. He can probably tell you a lot about why some people get paid more than others, if that question is keeping Obama awake at night.

On the macro policy issue, you have to think about the choice set that Obama and his advisors might be restricting themselves to. I think it would be good if there were an economist doing that job with a broad knowledge of modern macroeconomics, which in some sense econompasses a lot of stuff, including labor economics. If Obama had chosen a macroeconomist, it would likely have been a narrow Old Keynesian, in the mold of Christina Romer. Maybe Krueger is better than that.

So what if 'theory is pretty unequivocal about the minimum wage'? The empirical evidence is not.

The maligned Card and Krueger study found that reality did not accord with the theory as they found that employment increased when the minimum wage was raised.

Further, Neumark and Wascher's critical reexamination only modestly restated the conclusion to 'New Jersey’s minimum-wage increase did not raise fast-food employment in that state' which is not exactly a ringing endorsement of the 'unequivocal' prediction of theory.

"You're mistaking some empirical work for reality...That's no more real than the theory."

Yes, I should not have said 'reality'. But the point stands. State-of-the-art empirical work does not support the prediction of the theory. To my mind that should make people be more cautious about basing their view on the subject on the predictions of the theory.

I don't know if any serious labor economists believe the Card and Krueger paper/book, this review by John Kennan in the JEL is probably the best reference for the problems:http://www.jstor.org/stable/2729319and new data hasn't really helped their cause.

Actually that article has such a good beginning I'll quote it here:"The U.S. minimum wage is now $4.25 per hour, and Congress is talking about increasing it. If the minimum were to be increased to $25 per hour many workers would lose their jobs. Cause and effect would be obvious, even to the most jaundiced eye."

and the conclusion"A more balanced assessment is that the minimum wage may have a small effect on employment, but it is hard to detect in noisy data. Why not just say that?"

1) atheoretic2) a great economist and personally I think he'll recommend the small types of labor market interventions (like the one discussed in the comments) that won't severely screw things up, which at this point is the best I could hope for.

it is really inexcusable not to share the data behind a paper in most cases. Certainly, in some cases there maybe privacy issues but that is not the case here (I think) and not an issue in most cases. njtaxpreparation.net